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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-2’ NEW DELHI
Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM These two appeals are filed by the assessee and the Revenue against the order 26/03/2013 order passed by 144C(1)(3) read with Section 143 (3) of the Income Tax Act, 1961 for Assessment Year 2009-10.
The grounds of appeal
are as under:- (A.Y 2009-10)
1. That there is no international transaction as contemplated u/s 92CA of the Income-tax Act, 1961 (the Act) in respect of the alleged royalty chargeable from three Associated Enterprises (AEs) and consequently the order of the CIT (Appeals) upholding the chargeability of royalty from three AEs, as alleged by TPO, is arbitrary, unjust and bad in law.
2. That in the absence of any contract as existing during the year between the assessee and three AEs, neither any royalty accrued during the year nor can it be presumed to be receivable and consequently the order of the TPO and sustained by the CIT (Appeals) are without any basis/material and are based on surmises and conjectures not permissible under the law.
3. That the TPO and CIT (Appeals) failed to consider the geographical conditions of working of Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd., having no substantial awareness about the Dabur brand in the area and consequently the presumption and assumption about the chargeability of royalty by invoking the provision of Section 92CA of the Act from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. is arbitrary, unjust and without any basis.
4. That the CIT (Appeals) and TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd., no royalty can be said to have accrued to the assessee when Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. have incurred expenses on advertisement and sales promotion in their respective area for promotion of the brand different product which amounts to the services provided by the AEs to the assessee for establishing the brand and consequently the addition as made by the TPO and sustained by the CIT (Appeals) in respect of the alleged royalty chargeable from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. is arbitrary, unjust, not based on FAR involved and at any rate very excessive.
5. That CIT (Appeals) and TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd., no royalty can be said to have accrued to the assessee when Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. have incurred expenses on advertisement and sales promotion in their respective area for promotion of the brand and became the economic owner of the brand. Consequently the addition as made by the TPO and sustained by the CIT (Appeals) in respect of the alleged royalty chargeable from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. is arbitrary, unjust , not based on FAR involved and at any rate very excessive.
6. That the TPO and CIT (Appeals) failed to appreciate the relevant clause of the agreement as existed in earlier years wherein as per the agreement, Dabur India Ltd. failed to incur the expenses for the promotion of the brand and marketing expenses in Dabur Nepal Pvt. Ltd., which ultimately and actually were incurred by Dabur Nepal Pvt. Ltd., which resulted into termination of the royalty chargeable under the then contract and consequently the CIT (Appeals) has erred on facts and under the law in upholding the chargeability of the royalty from Dabur Nepal Pvt. Ltd.
7. That the TPO and CIT (Appeals) failed to consider that most of the manufactured products by Dabur Nepal Pvt. Ltd. had been sold to Dabur India Ltd. which cannot be the basis for charging royally having no connection with the brand used by Dabur Nepal Pvt. Ltd. in Nepal.
8. That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case Dabur Egypt Ltd on the loans availed from HSBC and NSGB bank @ 0.50% is arbitrary, unjust, without any basis and at any rate very excessive.
9. That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Naturelle LLC on the loans
availed from Royal Bank of Scotland @0.513 % is arbitrary, unjust, without any basis and at any rate very excessive. 10 That without prejudice to grounds no 8 & 9 above the assessee submit that CIT(A) and AO erred in holding corporate guarantee as International Transaction. 11. That the above grounds of appeal are independent and without prejudice to one another.
I.T.A. No. 3790/DEL/2015 (A.Y 2009-10)
1.”Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in reducing, the addition of Rs. 2,76,02,250/- on account of corporate guarantee by applying rate or 0.5% as against the rate of 4.71% applied by the JPO.
2. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in reducing the addition of Rs. 17.77 crores, made by the TP'O on account of adjustment in the arm 's length price of royalty.
3. Whether on the facts and in the circumstances- of the case and in law, Ld.CIT(A) has erred in allowing appeal of the assesses and directing the AO to recomputed the deduction u/s 80IB and 80IC of the Act without further allocation of the Head. Office expenses to various units.
4. Whether on the facts and in the circumstances- of the case and in law, Ld.CIT(A) has erred in deleting the addition made by the A.O on account of disallowance of expenses of Rs. 5,22,33,000/- made u/s 14A read with Rule 8D of Income Tax Rules.”
The assessee company is engaged in the business of manufacturing and trading of herbal products of health & personal care, cosmetics & veterinary products and FMCG product. The assessee company filed return of income declaring an income of Rs. 70,30,55,310/- on 26.09.2009. The assessee company paid tax under MAT provisions u/s 115JB of the Income Tax Act, 1961. The Transfer Pricing Officer made adjustment of Rs. 20,53,69,250/- (adjustment on account of Guarantee Rs. 2,76,02,250/- and adjustment on account of Royalty Rs. 17,77,67,000). The Assessing Officer passed the Assessment Order dated 26.03.2013 determining the total income at Rs. 1,07,61,15,860/- as against the total income of Rs. 70,30,55,310. The MAT adjustment was reduced by Rs. 12,68,03,280/- thereby making following additions: a) TP adjustment Rs.20,53,69,250/- b) Addition u/s 2(24)(x) r.w.s. 36(1)(va) Rs. 2,82,337/- c) Disallowance of expenses u/s 14A Rs. 5,22,33,000/-
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT (A) partly allowed the appeal of the assessee.
As regards, Ground No. 1 to 7 of assessee’s appeal and regarding to Ground No. 2 of the Revenue’s appeal, the Ld. AR submitted that there is no international transaction as contemplated u/s 92CA of the Income-tax Act. 1961 in respect of the alleged royalty chargeable from three Associated Enterprises (AEs) and consequently the order of the CIT (A) upholding the changeability of royalty from three AEs, as alleged by TPO is arbitrary, unjust and bad in law. The Ld. AR submitted that in the absence of any contract as existing during the year between the assessee and three AEs. Neither any royally accrued during the year nor can it be presumed to be receivable I and consequently the order of the TPO and sustained by the CIT(A) are without any basis/material and Assessment Year based on surmises and conjectures not permissible under the law. The CIT(A) erred in reducing the addition of Rs. 17.77 cores made by the TPO on account of adjustment in the arm’s length price of royalty. The Ld. AR submitted that the assessee in the past assessment years, entered into agreements with the following three associated enterprises: (a) Dabur Nepal Ltd. Nepal; (b) Dabur International Ltd.. UAE; and (c) Asian Consumer Care Pvt. Ltd. Bangladesh. In terms of the agreement entered into with the aforesaid entities, the assessee allowed its associated enterprises to provide assistance in recruitment and imparting technical know-how, etc. and permitted use of its trademark ‘Dabur’ for sale of products. The aforesaid agreements were, however, subsequently rescinded since the assessee did not provide any marketing support nor imparted any technical knowhow and further considering that substantial advertisement and marketing expenditures were incurred by the AE’s outside India. Accordingly, no royalty was receivable/ received by the assessee from its associated enterprises during relevant assessment year 2009-10. The Ld. AR submitted that the TPO, however, in the impugned order held that the AEs have used the brand-name/trade owned by the assessee without any compensation and accordingly, computed arm’s length price of royalty as follows:
Company Name FOB Sales Rate of Royalty Royalty (Rs. in (Rs. in adopted by TPO Lakhs) Lakhs) Dabur Nepal Pvt. Ltd. 12324 7.5% 924.3 Nepal Dabur International 21728 3.5% 760.48 Ltd. UAE Asian Consumer care 1548.18 6% 92.89 Ltd. Total 1777.67 Accordingly, an addition of Rs. 17.78 crores was made by the Assessing Officer /TPO to the income of the assessee on account of royalty. On appeal, the CIT(A) held that use of brand name by associated enterprises is an international transaction, the arm's length which is assessed under Section 92 of the Act.
Further the CIT(A) quantified the amount of royalty adjustment as under: (a) Dabur International Ltd. UAE The CIT(A) observed that the products manufactured by Dabur International Ltd. UAE are different from those man in India. Accordingly, the CIT(A), following the order for assessment year 2007-08 and 2008-09, reduced the rate royalty (i.e. 3.5%) charged by the TPO to 2% and restricted the arm's length price adjustment at Rs.434.56 lakhs. (b) Dabur Nepal Pvt. Ltd. Nepal The CIT(A) observed that (a) Rate of 3% is mentioned in the amended agreement: and (b) the assessee could not obligation to bear entire marketing expenses and therefore, Dabur Nepal Pvt. Ltd. Nepal did not pay any royalty. Accordingly, the CIT(A) following the order for assessment year 2007-08 and 2008-09. Applied the same rate of 2% as in case of Dabur International Ltd. UAE and restricted the arm's length price from Dabur Nepal Pvt. Ltd. at 8 lakhs. (c) Asian Consumer Care Pvt. Ltd., Bangladesh The CIT(A) observed that (a) no evidence has been furnished by the assessee to demonstrate that no technology was to Asian Consumer Care Pvt. Ltd. (b) the associated enterprise has continued to use the brand name of Dabur. Accordingly, the CIT(A) following the order for assessment year 2007-08 and 2008-09, applied the same rate of 2% as applied in case of Dabur Nepal Pvt. Ltd. and Dabur International Ltd, UAE and restricted the arm's length pi Asian Consumer Care Pvt. Ltd. at Rs.30.97 lakhs. The Ld. AR submitted that against the order of the CIT(A), cross appeals have been filed wherein the case of the Department is that the CIT(A) has erred in reducing the addition of Rs. 17.77 crores made by the TPO by adopting a lower rate of royalty @ 2% and the case of the assessee is that the action of CIT(A) in restricting the royalty charged at the rate of 2% in respect of all associated enterprises is bad in law and the entire addition was ought to be deleted. The Ld. AR submitted that the issue relating to agreement with Dabur Nepal Pvt. Ltd., Nepal is squarely covered by the decision of the Tribunal in assessee’s own case for A.Ys. 2006-07, 2007-08 and 2008-09 being ITA Nos. 3241, 3114, 6525 & 6256/Del/2014 order dated 18.02.2021. As regards to agreement with Dabur International Ltd., UAE operations, the issue is partly covered by the order of the Tribunal in A.Ys. 2006-07, 2007-08 and 2008-09 being ITA No. 3257/Del/2013, ITA Nos. 3241, 3114, 6525 & 6256/Del/2014 order dated 18.02.2021. As regards to Asian Consumer Care Pvt. Ltd. Bangladesh, the issue is partly covered by the order of the Tribunal in A.Ys. 2007-08 and 2008-09 being ITA Nos. 3241, 3114, 6525 & 6256/Del/2014 order dated 18.02.2021.
The Ld. DR relied upon the assessment order and further submitted that the CIT(A) was not correct in reducing the addition made by the TPO. But the Ld. DR could not distinguish the facts of the present assessment year to that of the facts of A.Ys. 2006-07, 2007-08 and 2008-09 wherein the Tribunal has decided these contesting facts.
We have heard both the parties and perused the relevant material available on record. As regards to agreement with Dabur Nepal Pvt. Ltd. Nepal, it is pertinent to note that the issue stands covered in favour of the assessee by the order of the Tribunal in the asssessee’s own case in for the A.Y. 2006-07, wherein the Tribunal held that no royalty was payable assessee by M/s Dabur Nepal Pvt. Ltd and deleted the addition made by TPO/CIT(A). The relevant findings of the Tribunal is as under: "36. As regards to the royalty charged from M/s Dabur Nepal Ltd. is concerned, it is not in dispute that earlier the royalty, was @ 7.5% as the assessee was bearing the cost of marketing expenses but later on Ms Dabur Nepal Pvt. Ltd. incurred expenditure in order to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty ht reduced from 7.5% to 3% (copy of the same is placed at page no. 113 of the assessee s paper book). In the preceding year, basis of the said amended
agreement, the royalty was charged (a), 3%. Therefore, the TPO was not justified in working royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111& 112 assessee's paper book). For the year under consideration, M/s Dabur Nepal Pvt. Ltd has not paid any royalty to the asses the reasons that it had to incur the expenses to penetrate the market. In this regard, vide letter written in May 2005, it was informed to the assessee that no royally will be payable from Financial Year 2005-06. It was also claimed that as per the Clause 7 of the original agreement dated 05.11.1992, the agreement shall become effective only after the approval by HMG Nepal and shall remain valid for a period of 10 years from the said date, unless renewed by mutual consent in writing and with prior approval of HMG Nepal. In the present case, it is not brought on record that the original agreement dated 05.11.1992 valid for 10 years, was renewed for further period and approval of HMG Nepal was taken. In the present case, the contention of the assessee that 80% products manufactured by M/s Dabur Nepal Pvt. Ltd. were purchased by the assessee has not been rebutted. It is also not in dispute that the royalty was payable earlier on the sales, therefore, it is unbelievable that the assessee charged the royalty on the purchases made by it from M/s Dabur Nepal Pvt. Ltd. to increase the cost of purchases. Even if it is presumed that the royalty was to be charged by the assessee then same amount was to be added in the purchases thus the impact will be revenue neutral i.e. on the one hand, income will be increased by crediting the royalty and on the other hand, the cost of purchases will be increased by that amount, since the sale was made by M/s Dabur Nepal Pvt. Ltd. to the assessee. In the present case, it is an admitted fact that there was no agreement in existence between the assessee and the AE i.e. M/s Dabur Nepal Pvt. Ltd. and nothing is brought on record to substantiate that the assessee incurred any expenditure which benefited M/s Dabur Nepal Pvt. Ltd. in any manner. Therefore, no royalty was payable to the assessee by M/s Dabur Nepal Pvt. Ltd. By considering the totality of the facts as discussed herein above, we are of the view that the royalty @
2% directed to be charged by the ld. CIT(A) was not justified, therefore, the addition made on the said basis is deleted. " Following the order passed for A.Y. 2006-07, the Tribunal, vide order dated 18.02.2021 passed in assessee's own case for the AYs 2007-08 and 2008-09 in 3114, 6525 & 6256/Del/2014 deleted similar addition of royalty in respect of Dabur Nepal Pvt. Ltd. The order of the Tribunal is as under:- "81.6 We find identical issue had come up before the Tribunal in assessee’s own case in the immediately preceding assessment year, i.e. 2006-07. We find, the Tribunal vide ITA No.3257 Del 2003 and ITA No.3492/Del/20I3, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee front Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd., UAE at 0.75% by observing as under:- .................................................................. 81.7 Since the facts of the present appeal are identical to the facts decided by the Tribunal in assessee's own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before its by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable from Dabur Nepal (P) Ltd., at 2% is directed to be deleted. So far as royalty receivable from Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur Nepal Pvt. Ltd. is not correct and has to be deleted.
As related to agreement with Dabur International Ltd., UAE operations, it is pertinent to note that the said issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case in for A.Y. 2006-07, wherein the Tribunal, on similar fact held that royalty @ 0.75% is to be charged from Dabur International Ltd. The Tribunal held as under:- "35 From the co-joint reading as contemplated u/s 92C of the Act read with Rules 10B and 10C of the Income Tax Rules, 1962, it would be clear that for the purpose of making transfer pricing adjustments, the arm’s length price has to be determined on finding out similar type of payments received by similarly situated and comparable independent entities. But in the present case no comparable case has been brought on record by the TPO or the ld. CIT(A) while making adjustment on account of royalty. Moreover, no agreement was inforce to charge royalty from the AEs and that the FMCG products are new to the assessee who is known for its Herbal and Aurvedic products. In the instant case, it is not brought on record that the assessee had incurred any expenses for marketing the products manufactured by M/s Dabur International Ltd. (AE) in UAE and that the assessee either made any efforts or contributed any money for the establishment of its name in geographical area of UAE and the products manufactured by the UAE were not different from the products manufactured in India by the assessee. Moreover, the claim of the assessee that the raw material and medium used in the manufacturing at UAE was totally different from the raw material and medium used in India has not been rebutted. The products manufactured by the assessee were as per the local needs and taste of the public residing in UAE. Furthermore, the ld. CIT(A) himself admitted that M/s Dabur International Ltd., UAE had not manufactured any products with the technical know-how and R&D support of the assessee but had manufactured on its own, in accordance with the requirement and local taste of the local public, however, he directed the AO to calculate the royalty @ 2% but without any basis. In the present case, it is an admitted fad that the TPO/AO had not applied any transfer pricing method as prescribed under the Act and simply made the adjustment in respect of royalty based on the earlier agreements which had already expired and there was no new agreement between the assessee and its AEs. The earlier agreement was entered by M/s Redrock Ltd. on 1st April 2003, at that point of time, the said company was manufacturing the products with the technical know-how and R&-D support of the assessee in respect of Aurvedic Herbal products. But later on, when the said company found that the Aurvedic products were not acceptable in UAE as in the said country Unani system of medicines was acceptable as per the local trend and custom. The said AE in UAE had abandoned the manufacturing of the .Ayurvedic herbal products and then entered into the business of FMCG products which were earlier manufactured by the Redrock Ltd. with its own technology as per the requirement and taste of a local public of UAE by keeping into consideration the geographical and market situation. The said company was acquired by the assessee and now for the manufacturing of its products, the assessee did not provide any market strategies, nothing is brought on record that the assessee had borne the expenses, provided the funds or compensated for market failure and the quality etc. It, therefore, appears that the assessee had not made any effort for establishing the trade name nor had made any other contribution. Therefore, the assessee did not receive any royalty for the year under consideration and in the preceding year, the royalty @ 1% was paid to the assessee for the reason that Ayurvedic products were made with the technical know-how and R&D support of the assessee. However for the year under consideration, the FMCG products were manufactured which were different from the Indian products having different raw material and medium used in the manufacture. At the same time, the brand name of the assessee was used by the AE and in the earlier years the assessee provided the R&D support, know-how technologies etc. which helped the AE for the year under consideration also to some extent. It is also noticed that the assessee received the royalty @ 1% in the preceding year. The TPO also while working out the royalty rate for the year under consideration was of the view that the royalty @ 1% was chargeable on the products manufactured without the aid and support of assessee company but marketed by using "Dabur” name, however, no basis has been given for the same. In our opinion the estimate made by the TPO for the rate of royalty was highly excessive. We therefore, after considering the totality of the facts are of the view that the ld. CIT(A) was not justified in directing the AO to charge the royalty from Dabur International UAE @ 2%. Particularly, when the assessee was not using the technical know- how or R&D support from the assessee, in our opinion it will be fair and reasonable to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement & brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R&D support and technical know-how from the assessee but the aforesaid expenses were comparability less. "
Following the said order passed for A.Y. 2006-07, the Tribunal, vide order dated 18.02.2021 in assessee's own case for A.Ys. 2007-08 and 2008-09 restricted the adjustment of royalty @ 0.75% of FOB sales in respect of Dabur International Ltd. The Tribunal held as under: "81.6 We find identical issue had come up before the Tribunal in assessee's own case in the immediately preceding year, i.e. 2006-07. We find, the Tribunal vide and ITA No. 3-192 Del 2013, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee from Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd.. UAE at 0.75% by observing as under:- ……………. 81.7 Since the facts of the present appeal are identical to the facts decided by the Tribunal in assessee’s own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before us by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable from Dabur Nepal (P) Ltd. at 2% is directed to be deleted. So far receivable front Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. 81.8. So far as the argument of the ld. Counsel that the order of the Tribunal cannot be accepted because the same is not based on correct appreciation of facts is concerned, we do not find any merit in the argument of the ld. Counsel since as fairly conceded by the ld. Counsel at the time of hearing before us, the Hon'ble High Court has already dismissed the appeal filed by the assessee on this very issue. "
The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR or the Ld. AR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur International Ltd., appears to be not correct. It is pertinent to note that in this year also the AE was not using the technical know-how or R&D support from the assessee, therefore it will be appropriate to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement & brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R&D support and technical know-how from the assessee but the aforesaid expenses were comparability less. Thus, royalty to be charged at 0.75% in respect of agreement with Dabur International UAE.
As regards to Asian Consumer Cure Pvt. Ltd. Bangladesh, again it is to be noted that the issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case for A.Ys. 2007-08 and 2008-09 in 3114, 6525 & 6256/Del/2014. The Tribunal held that royally @ 0.75% is to be charged from Asian Consumer Care Pvt. Ltd. The Tribunal held as under:
"81.4. So far as Asian Consumer Care Pvt. Ltd. Bangladesh is concerned, it is his submission that the assessee was having 100% ownership in ACCPL, directly indirectly and thus, it could not have received any royalty from itself. The agreement with ACCPL entered on 01.12.2003 which was for a period of two years became defunct in December, 2005 as the same was not renewed thereafter. Therefore, in the absence of any contractual agreement, the assessee was not eligible to receive any royalty from ACCPL. It is his submission that products manufactured by ACCPL using technical knowhow of the assessee did not meet the requirements of customers in Bangladesh. Accordingly, after 2006, ACCPL entered into an agreement with Dabur Dubai to provide technical know. It is also his submission that merely on the basis of trade name of ‘Dabur’, the products manufactured by ACCPL were not accepted in Bangladesh and that it had to manufacture the products as per the local needs and taste of the public residing in the public area. It is also his submission that in order to penetrate the Bangladesh market, ACCPL adopted its own market strategy and had made alt the efforts for the establishment of 'Dabur' name in the Bangladesh which was very little known in that geographical area and incurred lot of expenses on advertisement, market establishment and had borne all the risks of market, manufacture and finance. Accordingly the assessee had neither made any efforts in establishing the trade name in Bangladesh nor had made any contribution towards the same. …………. 81.9 So far us the royalty from Asian Consumer Cure Pvt. Ltd., Bangladesh is concerned, we find, the facts and salient features of the agreement are identical to that of the facts and agreement with Dabur International Ltd.. UAE. Since the Tribunal already restricted such royalty to 0.75% in case of Dabur International Ltd., UAE, therefore, respectfully following the ratio of the decision of the Tribunal in assessee’s own case for the immediately preceding assessment year while restricting such royalty to 0.75% in case of Dabur International Ltd., UAE, we restrict the royalty from Asian Consumer Care Pvt. Ltd., Bangladesh to 0.75%.
81.10 In view of the above discussions, the grounds relating to the issue of Royalty by the Revenue are dismissed and it raised by the assessee are partly allowed. ”
The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR or the Ld. AR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Asian Consumer Care Pvt. Ltd., appears to be not correct. Therefore, following the earlier years order by the Tribunal, we are restricting the said royalty to 0.75% in case of Asian Consumer Care Pvt. Ltd., Bangladesh.
Thus, Ground Nos. 1 to 7 of the Assessee’s appeal are partly allowed and Ground No. 2 of the Revenue’s appeal is dismissed.
14. As regards Ground No. 8 to 10 of assessee’s appeal, the Ld. AR submitted that the CIT(A) erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur Egypt Ltd. on the loans availed from HSBC and NSGB Bank @ 0.50% and the same is arbitrary, unjust, without any basis and at any rate very excessive. The Ld. AR further submitted that the CIT(A) erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Naturelle LLC on the loans availed from Royal Bank of Scotland @ 0.513% is arbitrary, unjust, without any basis and at any rate very excessive. As regards to Ground No. 1 of Revenue’s appeal, the Ld. AR submitted that the CIT(A) has reduced the addition of Rs. 2,76,02,250/- on account of corporate guarantee by applying rate of 0.5% as against the rate of 4.71% applied by the TPO. The Ld. AR submitted that the assessee during the relevant previous year, issued the following corporate guarantees on behalf of its associated enterprises.
In favour of Finance facility Amount of Name of the Interest rate for obtained Guarantee Bank availing loan provided (in crores) Dabur Egypt USD 4.73K and Rs. 19.55 HSBC Bank, USD 3 months Ltd. Egypt EGP 3.55 crores Egypt, SAE LIBOR + 2.90% Million p.a. USD 27.50 NSGB Bank, 6 months Million Egypt LIBOR + 1.35% p.a. Naturalle LLC, USD 6 Million Rs. 30.43 The Royal 3mnths LIBOR UAE crores Bank of + Scotland, UAE 0.475%/0.875% for USD 28 lakhs and 32 lakhs resp. (24.03.2008 to 31.03.2008) USD 17 Million Rs. 8.62 crores 3 mnths LIBOR + 3% Total Rs. 58.60 crores The Ld. AR submitted that the TPO vide order dated 29/01/2013, imputed notional guarantee fee at the rate of 4.71% on the basis of ex-parte data obtained from various banks u/s 133(6) of the Act, calculated as under:-
Particulars Rate (in%) Average rate of bank rate of commission charged 2.71 2 Add:- Risk Adjustment Rate 4.71 The Ld. AR further submitted that the TPO accordingly made an adjustment of Rs. 2,76,02,250 (4.71% of Rs. 58.60 crores) to the income of the allegedly on the ground that the assessee ought to have charged service fees/commission on providing such corporate guarantee on behalf of its associated enterprises. The Ld. AR submitted that as regards the action of the TPO in computing the guarantee/service fees @ 4.71%. the CIT(A), in context of guarantee on behalf of Dabur Egypt Ltd., Egypt, the CIT(A) following its order for assessment year 2007-08 and 2008-09, determined the service fee on account of corporate guarantee at 0.50% as against 4.71% adopted by the TPO and deleted the balance addition made by the Assessing Officer. In case of guarantee issued on behalf of Naturalle LLC, UAE, the CIT(A) following its order for assessment year 2008-09, determined the service fee on account of corporate guarantee at 0.513% as against 4.71% adopted by the TPO and deleted the balance addition made by the Assessing Officer/ TPO. Against the aforesaid order of the CIT(A) cross appeals have been filed wherein the case of the Department is that the CIT(A) has erred in reducing the addition of Rs.2.76 crores made by the TPO on account of corporate guarantee by determining the service fee on account of corporate guarantee at lower rate of 0.50%/0.513% and in case of the assessee, the assessee is submitting that the action of CIT(A) in confirming the addition of service fee on account of corporate guarantee @ 0.50%/0.513% is bad in law and the entire addition was ought to be deleted. The Ld. AR submitted that the issue is covered in favour of the assessee in assessee’s own case in A.Ys. 2007-08 and 2008-09 vide order dated 18.02.2021 in 3114, 6525 & 6256/Del/2014, therefore these grounds of the assessee be allowed and Revenue’s ground be dismissed.
15. The Ld. DR relied upon the assessment order and further submitted that the CIT(A) was not correct in reducing the addition made by the TPO. But the Ld. DR could not distinguish the facts of the present assessment year to that of the facts of A.Ys. 2006-07, 2007-08 and 2008-09, wherein the Tribunal decided this contesting issue.
We have heard both the parties and perused the relevant material available on record. It is pertinent to note that the issue of corporate guarantee issued by the assessee-company to HSBC Bank, Egypt, SAE and NSGB Egypt on behalf of Dabur Egypt Ltd. stands squarely covered by the order dated 18.02.2021 passed by the Tribunal in assessee’s own case for A.Ys. 2007-08 and 2008-09 in 3114, 6525 & 6256/Del/2014. In the consolidated order, the Tribunal, while adjudicating the appeals for the A.Y. 2007-08, observed that the incremental interest saved due to guarantee provided by the assessee to HSBC Bank, Egypt, SAE on behalf of Dabur Egypt Ltd was only 0.60% as against 1% considered by the CIT(A). Accordingly, the Tribunal restricted the rate of service fee @ 0.30% as against 0.50% as held by the CIT(A). The relevant extracts of the decision of the Tribunal are as under: “23. So far as corporate guarantee issued on behalf of Dabur Egypt Ltd., Egypt is concerned, we find the assessee had issued corporate guarantee of Rs.4.899 crores (EGP 3.55 million) to HSBC Bank, Egypt, SAE against the loan of EGP 3.55 Millon and USD 4,50,000 - raised by Dabur Egypt Ltd., Egypt. A perusal of the letter dated 11th September, 2013 issued by HSBC Bank, Egypt, SAE copy of which is placed at page 345 of the paper book shows that on account of release of corporate guarantee requested for by Dabur Egypt Ltd., Egypt, the bank increased the interest rate from 11.90% to 12.50%. Thus, an inference can be drawn from the said letter that the incremental interest saved due to guarantee provided by the assessee was 0.60%. We find merit in the argument of the ld. Counsel for the assessee that the benefit of the explicit guarantee accrue to both the guarantor and the borrower, therefore, the interest benefit should be split between the parties to the transaction, i.e. the borrower and the guarantor and as per rule of thumb such benefit should be in 50:50 basis. Although the Ld.CIT(A) has attributed 50% of such savings as the service fee on account of guarantee, however, he had taken the savings on interest due to such guarantee provided by the assessee at 1%. Under these circumstances, we find merit in the argument of the Id. Counsel that charging of service fee at an adhoc rate of 0.5% should be reversed and may be restricted to 0.30% in respect of corporate guarantee issued to Dabur Egypt Ltd. as against 0.5% held by the CIT(A). Thus, the ground raised by the Revenue on this issue is dismissed and the ground raised by the assessee is partly allowed.”
Subsequently, while adjudicating the appeals for the assessment year 2008-09 which involved the issue of corporate guarantee by the assessee-company to both HSBC Bank, Egypt, SAE and NSGB Bank, Egypt (same as in the assessment year 2009-10 on behalf of Dabur Egypt Ltd, the Tribunal restricted the rate of service fee @ 0.30%. The Tribunal held as under: "126. We have heard the rival arguments and perused the record. So far as the guarantee issued on behalf of Dabur Egypt Ltd., Egypt is concerned, we have already dealt with this issue while deciding ground of appeal No. 2 and 3 for A.Y. 2007-08 and the same has been determined at 0.30%. Following similar reasonings, we modify the order of the CIT(A) and directed the AO to adopt the service fee on account of corporate guarantee at 0.30% in respect of an grantee issued on behalf of Dabur Egypt Ltd., Egypt. ”
The action of the CIT(A) of charging service fee at an ad-hoc rate of 0.50% in case of HSBC Bank, Egypt, SAE and NSGB Bank, Egypt needs to be restricted to 0.30% as per the decision of the Tribunal in A.Ys. 2007-08 and 2008-09 as the facts of the present assessment year 2009-10 is identical and no distinguishing facts were pointed out by the Ld. DR at the time of the hearing. As regards to Naturalle LLC, UAE, the corporate guarantee issued by the assessee-company to Royal Bank of Scotland, UAE on behalf of Naturalle LLC, UAE stand squarely covered by the order dated 18.02.2021 passed by the Tribunal assessee’s own case for A.Y. 2008-09 in & 6256/Del/2014 wherein the Tribunal restricted the service fee @ 0.30% as against 0.513% as held by the CIT(A). Thus, we direct the Assessing Officer to restrict the service fee @ 0.30% in respect of Dabur Egypt Ltd., Egypt. The Tribunal held as under: "127. So far as the corporate guarantee issued on behalf of Naturalle LLC. UAE is concerned, a perusal of the details further by the assessee in the paper book shows that the assessee has saved incremental interest of 1.025% due to guarantee provided by the assessee which was only with effect from September, 2007. Therefore, we find merit in the argument of the ld. Counsel that the proportionate interest saved by the Naturalle. LLC was only for a period of 7 months and accordingly, interest saving on only 0.60% was made by Naturalle, LLC. We have held in the preceding years that interest benefit be split between the guarantor and borrower on 50:50 basis. Therefore, applying the said rule, the benefit can be attributed to the service fee on account of guarantee at 0.30%. We accordingly modify the order of the CIT(A) and direct the AO to restrict the service fee/commission for providing such corporate guarantee at 0.30% on the amount of Rs. 13.06 crores provided to Naturalle LLC, UAE. The grounds of appeal Nos. 7 and 8 filed by the assessee are accordingly partly allowed.”
Thus, the action of the CIT(A) of charging service fee at an ad-hoc rate of 0.513% was not correct and the same has to be restricted to 0.30% as the facts are identical to that of A.Y. 2008-09 and no distinguishing facts were pointed out by the Ld. DR at the time of the hearing. Thus, we direct the Assessing Officer to restrict the service fee @ 0.30%. Therefore, Ground Nos. 8 to 10 of the assessee’s appeal are partly allowed and Ground No. 1 of Revenue’s appeal is dismissed.
As regards Ground No. 3 of Revenue’s appeal relating to the direction of the CIT(A) that the Assessing Officer to re-compute the deduction u/s 80IB and 80IC without further allocation of the Head Office expenses to various units, the Ld. DR relied upon the Assessment order and submitted that the Assessing Officer has rightly held that the selling and distribution expenses aggregating to Rs. 1385.99 lakhs and miscellaneous expenditure of Rs. 394.18 lakhs are not allocated to the units as well as the depreciation aggregating to Rs. 5.66 crores on the assets of the Head Officer which was not allocated to the units.
The Ld. AR submitted that during the year under consideration, the assessee had 24 industrial units undertaking manufacturing of products, out which 9 units were eligible for deduction under Section 80IB/ 80IC of the Act which are as follows:
a) Rudrapur b) Oral care- Baddi Unit c) Jammu Unit-1 d) Jammu Unit-2 e) Toothpaste- Baddi Unit f) Shampoo- Baddi Unit g) Honey/Amla Extract- Baddi Unit h) Honitus-Baddi Unit i) Glucose- Baddi Unit The Ld. AR further submitted that during the A.Y. 2009-10, the assessee declared profit and gains from the eligible businesses on the basis of separate books of accounts and claimed deduction aggregating to Rs.36,368.41 lakhs under Section 80IB and Section 80IC of the Act. The Assessing Officer observed that selling and distribution expenses aggregating to Rs.1385.99 lakhs and miscellaneous expenditure of Rs.394.18 lakhs were not allocated to the units. Further, the Assessing Officer also observed that depreciation aggregating to Rs.5.66 crores on the assets of Head Office was not allocated to the units. Accordingly, the Assessing Officer allocated the aforesaid expenses and depreciation in the ratio of sales of eligible units for computing deduction under Section 80IB and 80IC of the Act and restricted deduction under the said sections at Rs. 35,216 lakhs as against deduction of Rs.36,368.41 lakhs claimed by the assessee. On appeal, the CIT(A), following its order for the assessment years 2007-08 and 2008-09 reversed the action of the Assessing Officer and directed to recomputed the deduction under section 80IB/80IC of the Act without further allocation of expenses and depreciation to various units by observing as under: (a) Since, the assessee has itself added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Act, the assessing officer was wrong in allocating the depreciation of Rs.5.66 crores under the Companies Act to the eligible units.
(b) As regard the selling and distribution expenses of Rs. 1385.99 lakhs and miscellaneous expenditure of Rs.394.18 lakhs, the CIT(A) observed that the said expenses aggregating were suo-moto disallowed by the assessee and added back in the computation of income. Therefore, since these expenses were not claimed by the assessee, the same cannot be allocate eligible units for computation of deduction under Section 80IB/80IC of the Act; The Ld. AR submitted that the CIT(A) has rightly reversed the action of the assessing officer to allocate certain expenses and depreciation to various eligible units for the purpose of computing deduction under section 80IB/80IC of the Act. The Ld. AR further submitted that the issue is now covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Ys. 2007-08 and 2008-09 in 3114, 65 6256/Del/2014.
We have heard both the parties and perused all the relevant material available on record. The identical issue of the allocation of head office depreciation, selling & distribution expenses and miscellaneous expenditure resulting in reduction of claim of deduction under section 80IB and 80IC of the Act has been decided by the Tribunal in the assessee's own case for the A.Ys. 2007-08 and 2008-09 in 3114, 6525, 6256/Del/2014. The relevant findings of the decision of the Tribunal for the assessment 2007-08 are reproduced as under: "93. We have considered the rived arguments made by both the sides, perused the orders of the AO and CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, during the year under consideration, had 18 industrial units undertaking manufacturing of products out of which 10 units were eligible for deduction u/s 80IB/80IC of the Act, the details of which were given at para 83 of this order. During the year, the assessee declared profit and gains from eligible business on the basis of separate books of account and claimed deduction aggregating to Rs. 27,209.71 lakh u/s 80IB and 80IC of the Act. According to the AO, the Head Office expenses amounting to Rs.2214.02 lakhs were not allocated to the units. Further, according to the AO, depreciation to the tune of Rs. 704.49 lakhs on assets of the Head Office was not allocated to the units. Accordingly, the AO allocated the Head Office expenses and depreciation in the ratio of sales of eligible unit for computing the deduction u/s 80IB /80IC and restricted such deduction to Rs 25,404.88 lakhs as against Rs.27,207.71 lakhs claimed by the assessee. We find, the Ld. CIT(A) reversed the action of the AO and directed him to recompute the deduction u/s 80IB/80IC of the Act without further allocation of head office expenses and depreciation to various units by observing that the assessee has itself added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Act and, therefore, the AO was wrong in allocating difference of depreciation available under the Companies Act and the Income- tax Act to the eligible units. So far as the head office expenses aggregating to Rs.2,214.02 lakhs is concerned, he noted that expenses aggregating to Rs. 1,563.02 lakhs, were suo motu disallowed by the assessee and added back in the computation of income. Therefore, once these expenses were not claimed by the assessee, the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC of the Act. The ld.CIT(A) also further noted that scientific research expenses of Rs.651 lakhs, which was included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC of the Act and, therefore, cannot be, allocated to the eligible units. 93.1 We do not find any infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld. CIT(A) that the assessee has added back the depreciation as per Companies Act. 1956 and claimed depreciation as per Income-tax and, therefore, the AO was wrong in allocating the difference of depreciation available under the Companies Act and the Income-tax Act to the eligible units could not he controverted by the Id. DR. Similarly, the Ld. DR also could not controvert the factual finding given by the CIT(A) that expenses aggregating to Rs. 1,563.02 lakhs being head office expenses were suo moto disallowed by the assessee and added hack in the computation of income and once these expenses were claimed by the assessee the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC and. therefore, cannot be allocated to the eligible units. 93.2 A perusal of page 67 of the paper book Volume-I shows that during the financial year under consideration, depreciation amounting to Rs.2,197.81 lakhs was debited to the P&L Account. A perusal of the computation of income, copy of which is at page 425 of the patter book Volume II, shows that the assessee has added hack the aforesaid depreciation under Companies Act and claimed depreciation of Rs.2,902.3 lakhs in accordance with the provisions of section 32 of the Act. The depreciation as claimed in the return of income was duly allocated among all the units including the eligible units. We, therefore, find no infirmity in the order of the CIT(A) in reversing the action of the AO in allocating the difference of depreciation available under the Companies Act and Income-tax Act to the eligible units. 93.3 So far as the Head office expenses are concerned, we find the AO has allocated the head office expenses of Rs.2.214.0 lakhs. the details of which are as under:- ................................. 93.4 A perusal of page 425 of paper book, Volume-II shows that Miscellaneous expenses written off, donation and provision for bad debts were suo motu disallowed by the assessee in its return of income. Therefore, once the aforesaid expenses were not claimed as a deduction by the assessee, the same, in our opinion, cannot be allocated to the eligible units and be considered for computing the deduction u/s 80 IB/80IC of the Act. 93.5 So far as scientific research expenses of Rs. 651 lakhs is concerned, the finding of the id. CIT(A) that such expenses have no nexus with the units eligible for deduction has not been controverted by the Revenue. We find, the Hon’ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. vs CIT, 350 ITR 366 (Bom) has held that once the expenses have no nexus with the units eligible for deduction, such expenses cannot he allocated to units for the purpose of computing deduction u/s 80IB/80IC of the Act. Since the scientific research expenses of Rs 651 lakhs which were included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC, the same, in our opinion, cannot be allocated to the eligible units. In this view of the matter, the order of the CIT(A) is upheld and the ground raised by the Revenue on this issue is dismissed.”
In the present assessment year i.e. 2009-10, the assessee had 9 industrial units undertaking manufacturing of products and all these units are eligible for deduction u/s 80IB/80IC, the details are reproduced in page 12 of the assessment order itself. During the year also the assessee claimed the deduction u/s 80IB/80IC as per the details given. These units are eligible for the deduction u/s 80IB/80IC which is identical to that of earlier years i.e. 2007-08 and 2009-10. Hence, the CIT(A) has rightly allowed this deduction. It is pertinent to note that similar allocation of expenses and depreciation made by the Assessing Officer in A.Y. 2008-09 was also deleted by the Tribunal. The extracts are reproduced as under: “131. After hearing both the sides, we find the assessee in the instant case has already disallowed depreciation under Companies Act and has claimed depreciation under Income-tax Act and has duly allocated to various units. Similarly, selling and distribution expenses of Rs. 789.37 lakhs was suo moto disallowed in the computation of income, the sales tax expenses of Rs. 135.78 lakhs which does not have any impact on profit cannot be allocated to the eligible units. The miscellaneous expenses of Rs. 566.79 lakhs was suo motu disallowed in the computation of income. We find, the above ground is identical to ground of appeal No.6 in filed by the Revenue. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following similar reasoning, this ground filed by the Revenue is dismissed"
The CIT(A) has given a detailed findings and no distinguishing facts were pointed out by the Ld. DR for the present assessment year. Hence, there is no need to interfere with the findings of the CIT(A). Ground No. 3 of the Revenue’s appeal is dismissed.
As regards Ground No. 4 of Revenue’s appeal relating to addition on account of disallowance of expenses of Rs. 5,22,33,000/- under Section 14A r.w.r. 8D of the Income Tax Rules, 1961, the Ld. DR relied upon the assessment order and submitted that the CIT(A) erred in deleting the addition.
The Ld. AR submitted that during the previous year relevant to the assessment year 2009-10, no exempt income was earned by the assessee. The assessee, being an operating company, incurred various expenses in the course of normal business operations and no expenses were incurred in relation to earning of exempt income. Therefore, the assessee did not disallow any expenditure under Section 14A of the Act. The Ld. AR further submitted that in the assessment order, the Assessing Officer, without judiciously appreciating the facts of the case, disallowed an amount of Rs.5,22,33,000 under Section 14A of the Act by holding the same to be expenditure incurred for earning exempt income. On appeal, the CIT(A) following its order for assessment year 2007-08 and 2008-09 deleted the entire disallowance made by the Assessing Officer under Section 14A of the Act. The Ld. AR submitted that when no exempt income is actually earned by an assessee from investments held during the year, no portion of expenses incurred during the year can be disallowed under Section 14A of the Act. The Ld. AR relied upon the following decisions: Cheminvest Ltd. vs. CIT: 234 Taxman 761 (Del HC) CIT v. Chettinad Logistics (P.) Ltd.: 248 Taxman 55 (Mad.) - Revenue's SLP dismissed in CIT v. Chettinad Logistics (P.) Ltd.: 257 Taxman 2 (SC) CIT vs. Holcim India Private Limited: 272 CTR 282 (Delhi) PCIT vs. McDonald’s India (P.) Ltd. : 101 taxmann.com 86 (Del.) PCIT v. IL & FS Energy Development Company Ltd.: 399 ITR 483 (Del.)
Interglobe Enterprises v. DCIT: & 1032/Del./2013 (Del. Trib.) - affirmed by Delhi High Court in ITA No. 456 of 2016 A CIT vs. Bharat Hotels Ltd..: ITA No.4959/Del/2012 & 5401/Del/2013 (Del.) CIT v. Corrtech Energy Pvt. Ltd.: 372 ITR 97 (Guj.) PCIT v. Vardhman Chemtech (P.) Ltd.: 261 Taxman 233 (P&H) CIT v. Winsome Textile Industries Ltd.: 319 ITR 204 (P&H)
The Ld. AR further submitted that the issue is now covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Ys. 2008- 09.
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the identical issue of disallowance under Section 14A of the Act in absence of any exempt income has been decided by the Tribunal in the assessee's own case for the A.Y. 2008- 09 in ITA No. 6256/Del/2014. The Tribunal held as under: “133. After hearing both the sides, we find, the assessee has not received any exempt income during the impugned assessment year and, therefore, following the decisions of the Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT reported in 272 CTR 232, no disallowance u/s 14A can be made. Therefore, in absence of any exempt income earned by the assessee for the impugned assessment year no disallowance u/s I4A could have been made. The ground raised by the Revenue is, therefore the dismissed.”
This issue is also covered in favour of the assessee by various decisions of the Hon’ble Delhi High Court wherein it is held that in the absence of any exempt income, no disallowance can be made under Section 14A. Thus, the CIT(A) has rightly deleted the addition of Rs.5.22 crore under section 14A of the Act. Ground No. 4 of the Revenue’s appeal is dismissed.
As regards Additional Ground No. 1 filed by the assessee, the Ld. AR submitted that the ESOP expenses of Rs.6,71,92,747 debited in the Profit & Loss Account ought to have been allowed as deduction in computing the income under the head 'Profit and Gains of Business'. The Ld. AR submitted that the assessee had floated an ESOP Scheme namely DABUR ESOS, 2000 wherein option had been given to employees to purchase shares of the assessee -company. The said scheme was framed in accordance with the mandatory Security Exchange Board of India ('SEBI') guidelines. Under the Scheme, as part of the employee compensation measure, an option to purchase the shares of the assessee-company after the completion of the vesting period was granted to the employees of the company at a price determined by the Compensation committee. The Ld. AR further submitted that the assessee company used intrinsic value method of accounting ESOP expenses as prescribed by SEBI (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines 1999, to account for ESOPs issued under the Scheme. During the relevant previous year, in accordance with the method, the difference between market price of share at the date of grant of option and the exercise price paid by the employee represented employee compensation expense. During the relevant previous year, in accordance with the mandatory guidelines issued by SEBI, the difference between the market price of share at the date of grant of option and the exercise price receivable from the employee at the time of exercise of option amounting to Rs.6,71,92,747 was debited/ charged to the Profit & Loss account. However, for purposes of taxation, due to ignorance of law, the amount so charged to the Profit & 1oss account was added back in the computation of income and therefore, no deduction of ESOPs expenses was claimed by the assessee in its return of income. The assessee in present appeal, vide letter dated 29.04.2019 has raised an additional ground of appeal before the Tribunal seeking to claim deduction of ESOPs expenses under Section 37 of the Act. The Ld. AR submitted that this issue is covered in favour of the assessee by the Tribunal in assessee’s own case for A.Y. 2006-07 in ITA No. 3257/Del/2013.
The Ld. DR opposed the admission of the additional ground but could not distinguish the facts of the present case to that of earlier assessment years.
We have heard both the parties and perused all the relevant material available on record. Since the additional ground is a legal ground by following the decision of the Hon’ble Apex Court in case of NTPC, we are admitting this ground. It is pertinent to note that the aforesaid issue has been dealt by the Tribunal in assessee’s own case for A.Y. 2006-07 wherein the identical additional ground was raised before the Tribunal to allow the decision of ESOP expense under Section 37 of the Act in view of the decision of Madras High Court in the case of PVP Venture (supra) and the Special Bench in the case of Biocon (supra). The Tribunal, while adjudicating the issue, admitted the additional ground raised
by the assessee and remanded the issue to the file of the Assessing Officer to decide in accordance with law. The relevant extract of the order are re-produced as under:- “87. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the additional ground has been raised have the assessee relating to the ESOP expenses which were debited in the profit and loss account but added back while computing the income allegedly under some misconception of facts and law. The issue raised by the assessee is legal issue.”
88. As regard to the admission of the legal ground, the Hon'ble Supreme Court in the case of National Thermal Power Ltd. (supra) held as under: …..
89. We, therefore, by keeping in view the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case admitted the additional ground raised by the assessee. However, it is an admitted fact that this issue has been raised by the assessee first time and the authorities below had no occasion to deal with this issue. He, therefore, deem it appropriate to remand this issue to the file of the AO/TPO to be decided in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
We have also noted that it is an undisputed position, as evident from the computations reproduced in the assessment order itself, that the amounts claimed as a deduction represent the actual exercise of options. In this view of the matter, and in view of the principles laid down in Special Bench decision in the case of Biocon Ltd. (supra), we uphold the grievance of the assessee. The disallowance of Rs. 11.96,23,407 must also, therefore, be deleted. We order so.
Ground So. 3 is also allowed. "
Following its aforesaid decision passed for A.Y. 2006-07, the Tribunal, vide order dated 18.02.2021 passed in assessee's own case for A.Ys. 2007-08 and 2008-09 in and 6525/Del/2014 again admitted said additional ground and restored the issue to the file of the Assessing Officer with a direction to adjudicate the issue in accordance with the law. The relevant extracts of the order of the Tribunal are reproduced as under: “ITA So.3241 Del 2014 {by the Assessee)- A Y 2007-08 115.4We have considered the rival arguments made by both the sides, perused the orders of the A O and the CIT(A) and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee in the instant case, has raised the additional ground before the Tribunal relating to the ESOP expenses which were debited in Profit & Loss Account, but, added back while computing the income under some misconception of facts and law. However, the issue in our opinion is legal in nature. We find, identical issue had come up before the Tribunal in ITA No.3257/Del/20l 3 (by the assessee and ITA No.3492/Del/2013 (by the Revenue) and the Tribunal vide order dated 12.04.2017 for A.Y. 2006-07 has admitted the additional ground and has restored the issue to the file of the AO for deciding the issue in accordance with law, after giving due opportunity of being heard to the assessee. The relevant observations of the Tribunal read as under: ………….. (by the Assessee) A.Y. 2007-08 115.5 Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in assessee’s own case in the immediately preceding assessment year, therefore, respectfully following the decision of the Tribunal in assessee's own case we admit the additional around and restore the issue to the file of the A.O with a direction to adjudicate the issue in accordance with the law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The additional around raised by the assessee is accordingly allowed for statistical purposes. ITA No. 6525/Del/ 2o14 ( by the Assessee - A. Y. 2008-09) 135. After hearing both the sides, we find identical additional ground was decided by us in the preceding paragraphs while deciding the appeal of the assessee for A.Y. 2007-08. We have already admitted the same and the issue has been restored to the file of the AO with a direction to decide the issue in accordance with the law, after giving due opportunity of being heard to the assessee. Following similar reasonings, the first additional ground raised by the assessee is admitted and restored to the file of the AO to decide the issue as per law after giving due opportunity of being heard to the assessee. The first additional ground raise assessee is accordingly allowed for statistical purposes. ”
Thus, in the present assessment year also we are remanding back this issue to the file of the Assessing Officer and direct the Assessing Officer to adjudicate this issue as per the law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Additional Ground No. 1 raised by the assessee is partly allowed for statistical purposes.
As regards additional Ground No. 2 raised by the assessee, the Ld. AR submitted that the amount of Rs. 17,13,27,377 being the exempted excise duty embedded in sales of Glucose Unit, Baddi (HP). Shampoo Unit Baddi and Jammu Unit-1 allowed incentive for industrialization and setting up of new unit by Notification No. 1(10) 2001- NER dated 701/2003, read with Notification No. 49/2003 and Notification No. 50 of 2003 of Central Excise dated 10.06.2003 is a capital receipt not liable to tax and accordingly, the amount of Rs.17,13,27,377/- be excluded from the income assessed. The Ld. AR submitted that the assessee is a company engaged in the business of manufacturing and sale of FMCG products especially ayurvedic medicines and other health products. The assessee has manufacturing units as under: * Glucose Unit located at Baddi. Himachal Pradesh- Set-up in 2003 (25.01.2003) and engaged in manufacture and sale of Glucose. * Shampoo Unit located at Baddi, Himachal Pradesh- Set-up in 2003 (26.09.2003) and engaged in manufacture and sale of Shampoo * Jammu Unit-1 located in Jammu. J&K- Set-un in 2003 (18.10.2003) and engaged in manufacture and sale of Shampoo The Ld. AR further submitted that the assessee is claiming deduction under Sections 80IC of the Act in respect of aforesaid units since assessment years 2003-04, 2004-05, which were the initial assessment years. The Ld. AR submitted that, vide various notifications issued by Central Government, the assessee has been granted exemption from payment of excise duty in respect of goods manufacture and cleared from the aforesaid units located at Baddi and Jammu for a period of 10 years, beginning from the date of commencement of commercial production in the said units, the details of which are as under; (a) Glucose Unit and Shampoo Unit at Baddi- Vide Central Excise notification No. 49/2003 read with Excise Notification No. 50 of 2003 dated 07.01.2003, excise duty exemption was granted to the assessee: (b) Jammu Unit-1 at Jammu- Vide Central Capital Investment Subsidy Scheme, 2002 issued by the Department of Industrial Policy & Promotion,
Ministry of Commerce & Industries vide Notification dated 22.10.2002 read with Notification 1(13)/2000-NER dated 14.06.2002 and Central Excise Notification No. 56/2002 and 57/2002, excise duty exemption was granted to the assessee Under the aforementioned scheme, during the relevant previous year, the assessee received, inter-alia, exemption of excise duty amounting to Rs.17,13,27,377. However, in the return of income filed by the assessee for the relevant assessment year 2009-10, the aforesaid amount of subsidy, was inadvertently offered to tax as part of taxable income. The assessee, in present appeal, vide letter dated 29.04.2019 has raised an additional ground of appeal before the Tribunal seeking to claim that such subsidy is in the nature of capital receipt, not exigible to tax and therefore, the same may be excluded from the total income of the assessee. The Ld. AR submitted that the similar issue was admitted by the Tribunal in A.Y. 2008-09 in in assessee’s own case and remanded back the issue to the file of the Assessing Officer for proper adjudication.
The Ld. DR opposed the admission of the additional ground but could not distinguish the facts of the present case to that of earlier assessment years.
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the issue is identical to the earlier assessment year i.e. A.Y. 2008-09 wherein the issue was admitted. Hence, we are admitting this issue. The Tribunal in the assessee’s own case for A.Y. 2008-09 in while adjudicating the issue, admitted the additional ground raised by the assessee and remanded the issue to the file of the Assessing Officer to decide in accordance with law. The relevant findings of the Tribunal are reproduced as under: "152. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee in instant case, has raised the second additional ground before the Tribunal relating to treatment of Rs.5,85,61,165/- being the exempted excise duty to be excluded from the income assessed on the ground that same being a capital is not liable to tax and be excluded from the income assessed.
The issue in our opinion, is legal in nature. The Hon’ble Supreme Court in the case of NTPC Ltd. vs. CIT reported in 229 ITR 585 has held us under: – …….
We find, the Hon’ble Delhi High Court in the case of CIT vs. Jai Parabolic Springs Ltd. (supra), while adjudicating the claim of deduction of entire deferred revenue expenses raised as additional ground has held as under:- … 155. We find, the Hon’ble Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders (P) Ltd. (supra), while adjudicating the powers of appellate authorities to consider a claim not made in the return has held as under: - …………….
In view of the above discussant and keeping in mind the ratio laid down by the Hon'ble Supreme Court in the case of NTPC Ltd. (supra), the Hon'ble Delhi High Court in the case of Jai Parabolic Springs Ltd. (supra) the decision of Hon’ble Bombay High Court in the case of Pruthvi Brokers and Shareholders (P) Ltd. (supra) and various other decisions relied on by the ld. Counsel for the assessee, we admit the additional ground raised by the assessee. However, it is an admitted fact that this issue has been raised by the assessee for the first time before the Tribunal and the authorities below had no occasion to deal with this issue. We, therefore, deem it proper to remand this issue to the file of the AO/TPO to decide this issue in accordance with law after providing due and reasonable opportunity of being heard to the assessee. The second additional ground raised by the assessee is accordingly allowed for statistical purposes."
Thus, in the present assessment year also we are remanding back this issue to the file of the Assessing Officer and direct the Assessing Officer to adjudicate this issue as per the law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Additional Ground No. 2 raised by the assessee is partly allowed for statistical purposes.